It's time for cooperatively-owned businesses to remake the face of capitalism

by Marilyn Anthony

There are 30,000 cooperatives in the United States with over 120 million members, nearly one in three Americans, yet most of us don’t understand the basics of this business model, even if we’re buying from them. Anyone who has ever picked up a jar of Ocean Spray juice or went camping with gear bought by REI has supported a co-op, with little or no thought about the fact the the model has direct ties to Benjamin Franklin and Philadelphia, and that it’s rooted in 18th and 19th century economic and social justice movements.

Jeff Frank, Executive Director of the Philadelphia Area Cooperative Alliance (PACA) offers a succinct, myth-dispelling definition for the co-op model: “It’s not socialism,” he says. “It’s just businesses being run fairly, by and for people.”

A cooperative is a legally defined business entity, buying and selling products or services to generate profit. But unlike the corporations we think of today, profit is not a co-op’s primary reason for existence. Members, not shareholder investors, make the business decisions in a “one member, one vote” democracy. Typically, profits are reinvested in the co-op or distributed to its members in an annual dividend proportionate to the amount a member buys from or sells to the co-op.

Today, co-op formation is hot in Philly, New York and the Pacific Northwest. So, what’s fueling the growth?

PACA’s Frank cites an increasing belief that “business[es] and corporations have been part of a lot of the problems that we see today: environmental problems, social justice problems and income inequality.” Kate Smith, from the Keystone Development Corporation (KDC), thinks that behind the sudden surge in grocery co-ops there is “a subconscious reaction to the understanding that our current food system is very fragile.”

Alex Moss, principal in Praxis, a national consulting group based in Mount Airy, states it more baldly. “There are all kinds of things you expect a for-profit business to do, including screwing you,” he says. “If you’re doing business with a cooperative, you have a higher expectation of both how you’re going to be treated and of the products you’re going to buy.”On the national scene, New York City Mayor Bill de Blasio is touting co-ops, there’s lots happening in the Bay Area, and everybody is talking about PACA and Philly, where the National Cooperative Business Association (NCBA) is investing in PACA as their touchstone for urban co-op development.

There is, however, little that is easy about starting a co-op, and running them can be challenging. But more and more people are trying to understand how they can make money, and still keep their values.

T.L. Hill, a professor at Temple University’s Fox School of Business, says that aspiring entrepreneurs ask this central question: “If you create new value in a capitalist structure, who gets that value?” Hill regularly encounters business students who want to change the world while making money. “Co-ops offer a legal structure where the highest profit is not your end result, and providing direct member and community benefit is baked into the business,” says Hill. In his experience, a well-run co-op will be a more effective organization over the long term, better able to balance the interests of profitability, democracy, mission and community.

Experts generally agree that access to capital is a major challenge in the start-up phase. A recent article in Locavesting, an online news site dedicated to the idea that impact investing is going local, notes that—while cooperatives were essentially an early form of crowdfunding—there’s a need to develop capital in new ways, like COOPRINCIPAL Investment Club, whose purpose is to spur the formation of local co-op investment clubs nationally.

Financial challenges to co-ops may be exceeded by the complexity of governance. Hill worries that there has not been enough learning about how to structure co-ops so that they work. As Glenn Bergman, former general manager of Weavers Way Co-op, can attest, “We tell the truth, the whole truth and nothing but the truth,” and that can be difficult for some people to hear. Genuine democratic governance must reconcile two deeply ingrained American traits: “I’m in it for myself,” vs. “I will subsume myself to the group.” Entrepreneurs have to resolve these tensions in a society that definitely rewards the former over the latter.

PACA’s Frank links new co-op formation to a desire for business to serve all people. Moss adds that co-op activists may be operating out of concern that economic forces like globalization and income inequality are “screwing everything up.” Co-ops may seem radical, but they are deeply conservative in the sense that they want to protect community equity. Co-ops offer a return to established, trusted economic models that add to community value, rather than fattening the coffers of the wealthiest one percent.

Historically, co-ops offered a solution to a market failure, where the needs of a community were unmet by conventional businesses. Early Philadelphia residents frequently lost their homes to fires. In 1752, Ben Franklin created the Philadelphia Contributionship Company, a member-owned insurance company offering homeowners protection against fire loss, and it is still in operation today. The largest and oldest worker cooperative in the world, Mondragon, grew out of a rural community’s devastation by the Spanish Civil War.

“Co-ops seem to thrive really well in times of economic downturn, when people want to be protected from economic shocks in their communities,” observes John Torres, Communications Director for NCBA.

All American co-ops can trace their origins to the Rochdale Society, established by textile workers in England in 1844 to provide quality household staples—like flour and candles—at affordable prices. The International Co-operative Alliance formed to foster co-ops globally, and in 1937 adopted the “Seven Principles of Cooperation” still used to govern co-ops today. Co-ops assume a variety of forms depending on their industry and mission. The most common are consumer, producer, worker or marketing co-ops. American co-ops are usually consumer co-ops such as grocery stores; rural electric or alternate energy providers; or credit unions. REI, purveyor of outdoor gear, is a consumer co-op. Philly boasts a number of well-established consumer co-op groceries such as Mariposa and Weavers Way, whose name honors the Rochdale weavers.

Producer co-ops tend to be larger scale, like Land O' Lakes, Cabot Cheese and Ocean Spray—a dynamic local example is Lancaster Farm Fresh Co-op CSA. These co-ops serve farmers by providing economies of scale for purchasing, processing, distribution, and sales and marketing.

Worker co-ops are smaller in number and scale, perhaps limited by the difficulty of managing businesses as true democracies. Philly is home to two nationally recognized worker co-ops, HomeCare Associates and ChildSpace, and some ambitious start-ups like W/N W/N, a café and bar.

Marketing co-ops are often national in scope, enabling individually owned businesses such as hardware stores to buy and sell under a brand like Ace/True Value Hardware. Equal Exchange, Sunkist and ShopRite are additional examples of large co-ops practicing capitalism with a conscience.

Co-ops are incorporated differently from Benefit Corporations (B-Corps), although they share triple bottom line values. A B-Corp is a legal entity owned by shareholders whose articles of incorporation permit the board of directors to take into account social impact for decision-making, but unlike co-ops, they can still be owned by just one person.

According to Praxis’ Moss, “Philly has been an enormous [co-op] incubator and even people in the co-op world don’t talk about that. We don’t take ourselves very seriously when, in fact, we invented half of what makes this country work, including the first co-ops.”